The Best Of The Bubble Stocks: The Southern Company (SO), Consolidated Edison, Inc. (ED) and More

Southern Co. has an advantage in the industry that their revenue stream is diversified. The company reported that retail fuel sales were down 9.62%, but retail non-fuel sales increased 4.46%. In addition, the company’s wholesale revenue increased 5.61%. This diversity should help Southern Co. deliver on analyst expectations for growth. All things being equal, Southern Co.’s faster earnings growth should allow the company more flexibility to increase their dividend at a better rate than their competition.

When it comes to Southern Co.’s margins, they beat the majority of their competition by this measure as well. In the current quarter, Southern Co.’s operating margin came in at 21.98%, which was a vast improvement over last year’s margin of 15.94%. By comparison, Duke’s operating margin was just 16.04% and Exelon did even worse at 9.19%. Of the four companies, only Consolidated Edison reported a better operating margin at 24.72%.

How Should Investors Play The Stock?
To invest in Southern Co., one way to lower your average cost would be to dollar cost average into the shares. Using this strategy, you should get a lower average price from buying more shares when they fall, and less shares when they rise.

The most important key to owning Southern Co. would be to reinvest dividends. This allows your dividends to buy additional shares, which both lowers your effective cost basis and raises your yield.

If you use these two investment theories, you should gain a higher yield at a lower cost over time. While the risk is still real, that short-term rates could rise and Southern Co. and other utilities could fall in price, this strategy should lessen this risk somewhat. If you want exposure to the utility industry, Southern Co. might be the best of this bubbly group of stocks.

The article The Best Of The Bubble Stocks originally appeared on Fool.com and is written by Chad Henage.

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